Positioned to Grow Shareholder Value

Positioned to grow

Subsequent to the end of 2016, MEG Energy took the bold step of restructuring its debt, extending its debt maturities, reducing some restrictions around selling of its assets, and raised $518 million of equity capital to kickstart the implementation of its highly-economic growth projects.

Highly-economic growth projects

The key to the transactions was the availability of these highly-economic growth projects and the ability of the company to grow in the future at approximately half the cost it did previously. In addition, the compression of the time frame from investment to cash flow has made these projects particularly attractive. Once production is on stream, the low level of decline along with the low level of capital required to sustain and maintain the wells adds to their uniqueness. The end result is that less capital will be required to sustain production and can be directed to growth.

Our growth projects provide a higher level of return because the capital required is much smaller than was needed previously. We expect our proprietary eMSAGP technology, applied to Phase 2B, will enable us to add 20,000 barrels per day to our production base by adding new infill and SAGD wells. The capital required, at $20,000 per flowing barrel, is about half of what the cost formerly was. 

In addition, the fact that the added barrels are being produced at our centralized location, which has primarily fixed costs, continues to drive our cost per barrel lower. 

Reduced overall cash costs

We anticipate that once eMSAGP is fully implemented on Phase 2B and the incremental 20,000 barrels per day are realized, our overall cash costs will drop by approximately $4 to $5 per barrel. Each incremental phase of growth will continue to drop our cost per barrel even further. 

As we continue to implement new phases of growth all the way to 210,000 barrels per day and drop our cash costs even further, the business will be more resilient to the volatility we have been seeing in commodity prices. 

Improved debt metrics

As we grow the business, we also expect our debt to be in the range of 3x to 4x on a net debt to EBITDA basis. As we implement further phases of our growth plan, these metrics will continue to improve. 

Finally, all of this has been planned on the basis of funding our growth utilizing the financial resources we have on hand and the cash flow generated at a WTI price in the mid to low $US fifties.